Global cocoa prices have hit a new record high due to poor harvests in West Africa, where the bulk of the global supply is grown.
The cost of cocoa – the key ingredient for making chocolate – has roughly doubled since the start of last year, and prices on the New York commodities market reached a new historic high of $9010.59 (US$5874) a ton last Thursday (February 8).
According to analysts, the El Niño weather phenomenon has caused drier weather in Ghana and Ivory Coast – the world’s two biggest producers of cocoa beans – leading to smaller crops.
“The traders are worried about another short production year, and these feelings have been enhanced by El Niño threatening West Africa crops with hot and dry weather,” said Jack Scoville, an analyst at Price Futures Group.
Meanwhile, according to Nasdaq, the intensity of this year’s seasonal Harmattan winds in West Africa is drying out cocoa fields and boosting cocoa prices on concern that cocoa yields for the region could be reduced and curb global cocoa production even further.
Meanwhile, data from the Ivory Coast government showed the nation’s farmers shipped 1 million metric tonnes of cocoa to ports from October 1 to January 28, down 36 per cent year on year.
The Ivory Coast’s cocoa regulator, Le Conseil Cafe-Cacao, has halted forward sales until it has a clear picture of expected cocoa production in the Ivory Coast, further adding to the tumult of the region’s cocoa supplies.
Maxar Technologies’ data shows that the total precipitation in West Africa, since the rainy season started May 1, has been more than double the 30-year average, and this has contributed to unfavourable growing conditions and crop disease on West African farms over the past year, curbing cocoa production and fuelling a scorching rally in cocoa prices.
The rising prices are already filtering through to consumers and squeezing major chocolate makers.
Cadbury parent Mondelez says its sales volume significantly dropped this fiscal year, while Hershey saw sales decline last year.
“While historic cocoa prices are expected to limit earnings growth this year, we believe our strong marketing plans, innovation and brand investments will drive top-line growth and meet consumers’ evolving needs,” said Michele Buck, president and CEO of The Hershey Company, in a recent earnings report.
Farm cooperative Cobank predicts that cocoa prices will likely remain high until a new African crop comes to the market later this year.
As a result, confectionery manufacturers still recovering from the impact of increased sugar prices will have “no choice” but to raise the prices of chocolate products.
“The cocoa issues come at a particularly challenging time for manufacturers, considering the increase in sugar prices they’ve been coping with over the past three years,” says Billy Roberts, senior food and beverage economist for CoBank.
“While sugar prices have recently retreated, cocoa futures prices remain near record levels and show little sign of any significant movement. That could lead to a further erosion of chocolate volume sales and impact dollar sales as well.”
